Magee v Crocker

This is a first instance commercial and trust dispute about the validity of a 2014 transfer of shares in Pedham Place Golf Centre Limited (the Company) from Camelot Trust Corporation Limited (as trustee of the Nisma Settlement) to the Fitzpatrick Family Discretionary Settlement (FFDS), and whether the 2010 Shareholders' Agreement (the 2010 SHA) remained binding between Mr Crocker and the transferees. The principal legal issues were (i) whether the transfer was procured by fraudulent misrepresentation; (ii) whether the statutory and contractual pre-emption and transfer procedures in the 2010 Articles were breached so as to render the transfer void (Articles 5.3, 5.4, 6.1, 6.9, 6.10); and (iii) whether the 2010 SHA survived by operation of novation or estoppel despite clause 13.1(a) (termination when a party ceases to hold shares) and the contractual restrictions on assignment and oral variation (clauses 18.1, 19.1 and 19.2).

HHJ Cawson KC concluded there was no actionable fraud: on the balance of probabilities there was no finding that Mr Fitzpatrick knowingly or recklessly misrepresented the settlor position of the Nisma Settlement to procure Mr Crocker’s consent. The judge found that pre-transfer discussions occurred and that Mr Crocker gave the practical assurances sought. On the facts and as an objective matter the Court inferred a novation: the parties’ conduct and the commercial context required that Camelot’s position be replaced by FFDS as counterparty on the same terms, and the 2010 SHA therefore continued to regulate the relationship. The judge also held that even if formal restrictions in clauses 18.1, 19.1 and 19.2 were engaged, they did not prevent novation in the circumstances and, alternatively, any objection was barred by estoppel/waiver. Consequently the 2014 transfer was effective and the Fitzpatrick Trustees may rely on the 2010 SHA; the counterclaim and Part 20 claim were dismissed.

The claim was brought by the trustees of the Fitzpatrick Family Discretionary Settlement (the Fitzpatrick Trustees) challenging aspects of the ownership and governance of Pedham Place Golf Centre Limited.

• Nature of the claim: declarations and consequential relief concerning the validity of a transfer of shares in 2014 from Camelot (trustee of the Nisma Settlement) to the FFDS (the 2014 Transfer) and declarations as to the right of the Fitzpatrick Trustees to rely upon the 2010 Shareholders' Agreement.
• Defendant’s case: Mr Crocker counterclaimed and pursued a Part 20 claim alleging (inter alia) that the 2014 Transfer was void because it breached the Company’s Articles (pre-emption and written-consent provisions), that the 2010 SHA had terminated on transfer (clause 13.1(a)), and that the transfer and/or any consent to it were procured by fraudulent misrepresentation and/or breaches of fiduciary duty.

The judge framed the dispute around two overriding questions: whether there had been fraud on the part of Mr Fitzpatrick depriving Mr Crocker of his pre-emption rights, and whether the 2010 SHA remained binding between Mr Crocker and the Fitzpatrick Trustees despite termination on transfer and the Trustees not being original parties.

The Court’s approach to evidence was important: the judge applied established caution where events dated back decades, giving weight to contemporaneous documents, the inherent probabilities and corroborated witness evidence.

Issues the Court determined and reasoning (concise):

• Fraud: the Court rejected the allegation of fraudulent misrepresentation. The judge found no cogent evidence that Mr Fitzpatrick knowingly or recklessly misrepresented the settlor status of the Nisma Settlement in order to procure Mr Crocker’s consent. On the facts the Nisma Settlement had a complex offshore structure; the practical control exercised by Mr Fitzpatrick after 2009 and the documentary record did not support a finding of deliberate deceit.
• Validity of the 2014 Transfer and pre-emption arguments: the Court found that, on the balance of probabilities, pre-transfer discussions occurred and Mr Crocker gave the assurances sought. The transfer was therefore effectively consented to. The judge held that it would be unconscionable (and, in any event, inconsistent with the parties’ conduct) for Mr Crocker to insist on technical pre-emption or written-consent objections after having given the practical comfort and thereafter signed share documentation and acquiesced in registration. Estoppel and waiver principles therefore prevented Mr Crocker from treating the transfer as void.
• 2010 SHA: the Court concluded there was an effective novation. On an objective assessment of what occurred (tripartite conduct, commercial context and subsequent dealings), the parties’ conduct substituted the original contracting party (Camelot) with the Fitzpatrick Trustees on equivalent terms. The judge held that clauses restricting assignment and oral variation (clauses 18.1, 19.1 and 19.2) did not, on proper construction and applying commercial common-sense, prevent such a novation; alternatively the objection was estopped or waived by Mr Crocker’s conduct.

Outcome: declarations in favour of the Fitzpatrick Trustees as to the validity of the 2014 Transfer and that the 2010 SHA remained binding (as novated) between the Fitzpatrick Trustees and Mr Crocker; the counterclaim and Part 20 claim dismissed. The judgment emphasised the significance of contemporaneous documentation, the perils of long-memory evidence and the differing legal consequences of assignment, waiver/estoppel and novation.

At first instance the claim was allowed. The court (HHJ Cawson KC) found no actionable fraud by Mr Fitzpatrick, inferred that the 2014 Transfer was effective (Mr Crocker had given the practical assurances and later signed share documentation) and held that the 2010 Shareholders' Agreement operated as novated in favour of the Fitzpatrick Trustees. The counterclaim and Part 20 claim seeking to void the transfer and to treat the 2010 SHA as terminated were dismissed. The judge gave detailed reasons, relying on the objective commercial context, contemporaneous documents and the application of novation and estoppel/waiver principles (also considering clauses 18.1, 19.1 and 19.2 of the 2010 SHA).